S.E.C. Real Estate Observer

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When I was first into investment real estate brokerage (having taken all the numbers courses before CCIM was invented), I would find what I thought was a really good buying opportunity, make a list of my 10 best clients/investors, and present my analysis. The usual response was, “Let me mull it over,” or some such comment.

So, turned on by discovering what I thought was a “bird’s-nest-on-the-ground” opportunity, I made a contract with the Seller, cultured for all the flexibilities I knew at the time. I posted my whole net worth as a deposit (something like $2K) and proceeded like the golf hustler playing for $100.00 with only $5.00 in his pocket. I did my due diligence (really = hard data to prove my initial conclusions), and formalized the presentation of the existing operations and my projections. I took it to my accountant for his opinion on tax benefits and re-contacted my list of potential investors (there were some tax benefits in those days).

“Hey, Joe! I am buying those apartments I showed you, and am going to share it with some partners. I will cause the results and subordinate my equity and commission to these results to the partners. Do you want to play? It requires $150K from partners. How much do you want to take?” Soon I had all the cash needed to complete the transaction. After doing this many times, I began teaching brokers “Small Office Syndication,” together with my real estate attorney/brother-in-law, Mal Misuraca (famous for the “Petaluma Case” for developers that was taken to the U.S. Supreme Court). He learned from S.E.C. members and later produced a course for attorneys, “Benevalues in Real Estate,” to compete against the laws that refer to “Fair Market Value.”

I became very knowledgeable about the tax factors (from Considine and Starr) and began syndicating doctors and other high-income clients, casting from product to produce benefits later. Big mistake! All of the transactions became at least as good as my projections, and everyone was happy as I did all the detail work and they got all the benefits before I got mine. But, as a class of clients, doctors can be more “high maintenance” than ex-wives.

The REAL BENEFIT to the BROKER who looks at everything like a buyer is that even if the circumstances surrounding the target property do not lend themselves to syndicating, during the diligence required to see if you want to stake your credibility on the benefits to be found, one becomes very knowledgeable about the property, takes off the “rose-colored glasses” that beleaguer most brokers and puts the “get real” into the counseling of the client. So, if the broker decides to take the listing and represent the seller, both are benefited by the “gimlet-eyed” buyer approach to the hard facts and issues. The broker can see what the market will do to this product, and can decide if the Seller is shooting blanks or is willing to list in a fashion that will go to escrow. The Seller benefits by having a broker who knows what he is doing, can show the Seller what the market will see, and counsel the client on the expectations and flexibility that will be required to get to the Seller’s objectives. This buyer’s approach makes a better appraisal than any other!!!

There are two critical decision points for the broker:

• Should I buy or should I list?
• Is this client going to meet the market or just clog the marketing process?

Sometimes, a target property is owned by one who hates to pay a commission (probably been burned by long listings that produce no results), or thinks he can sell it himself. This being a buyer, instead of a broker, the first contact gets one in the door to see the facts and deal “NET of commission” with the seller, which might be the only way in.

It all gets down to these bottom-line issues:

• Broker/buyer is forced to get “real” about a property and its deed signor before he puts up his deposit and chases investors. MAKES HIM LEARN what he needs to know to analyze a project.
• Seller gets to confront the “real” early to see if he is going to be in the market or just “testing the waters.”
• Allows the investor to have more confidence that the proponent is not just proposing anything that will get him a commission; consequently the investor can get into beneficial deals he would not do by himself.
• Allows the broker who has not much going on in his business to CREATE a closed deal by getting up every morning having control of half of a deal. The fact is that only the Seller is a problem, because the buyer is “in house.”

Add this approach to my famous “Stone Soup” guaranteed transaction-producing process and YOU can write these articles so I can get back to my job of throwing feathers at fish, unfurling my jib and lowering my handicap.